How Coach scaled from a single store into a global icon

LEW FRANKFORT: He said, “Well, I have a friend from childhood who has a small pocketbook company called Coach. It’s $6 million in sales. He’s 60 years old, and he’s looking for a protege. He’s looking for someone who has two qualifications. One, they have no fashion experience.” That was me. “And the second was good values.” And I said, “Well, I got good values, I think.”

BERMAN: What did you join Coach as? What was your role coming in?

FRANKFORT: Effectively as an assistant to the CEO, I got the title VP for marketing and special projects.

BERMAN: I mean, titles are free. Isn’t that great?

FRANKFORT: Titles are free.

BERMAN: This is Masters of Scale.

[THEME MUSIC]

I’m Jeff Berman. Your host today on the show is Lew Frankfort. Lew spent decades as CEO of the iconic brand Coach. When he started there, the then-small New York City handbag maker was doing about $6 million a year in sales. Under Lew’s leadership, Coach grew into a billion-dollar brand and an international icon known for a new category of accessible luxury. In his new memoir, Bag Man, Lew reveals fascinating insights about how to scale, and he shares some of those insights with us here today. Lew, welcome to Masters of Scale.

FRANKFORT: Delighted to be here with you, Jeff.

Copy LinkHow public service shaped Lew Frankfort

BERMAN: One of the many reasons I’ve been looking forward to sitting with you is that you and I have a couple of things in common. I’ll flatter myself, and one of them is we both started our careers meaningfully in public service. I’m curious how you got started in government.

FRANKFORT: I’m a product of the ’60s, and I came of age thinking that my generation would create a better world. John Lindsay was mayor, and he was recruiting young people, idealistic people, who wanted to go on a journey with him. After one year, I decided I was either going to leave city government because I was surrounded by people who were looking just to get to Friday or get to vacation. I was looking to improve things. So I thought I would take a chance with one more job. I looked for a mentor who really wanted to make a difference, and I found that person.

BERMAN: How did you go about seeking a mentor?

FRANKFORT: I networked in city government and asked who was smart, who cared, and who could get stuff done. There were two people who were mentioned at the time. One was this guy, Herb Rosenzweig, and I reached out to Herb and he hired me. I went with him as he moved to different positions, and ultimately my profile was high enough that when the city was looking for someone who might be able to go in and try to fix the daycare and Head Start programs in 1976, when there was a poster child for inefficiency and corruption, people thought of me.

BERMAN: What attracted you to the challenge of reforming these massive and massively important programs?

FRANKFORT: I really believe in daycare and Head Start services. I believe in creating as much opportunity as possible for the underclass, and that’s an essential fabric of who we are, not just then but today. Our country is based on immigrants, and we may be third generation or second or first or 10th. It doesn’t matter. We need to welcome them, and we need to create opportunities. The program was really in danger of collapsing.

BERMAN: Why was it at risk of collapsing?

FRANKFORT: Because it was not administered well. When audits occurred, they found that in many instances only half the kids were eligible, and they found this community-based program was frequently run by people for their self-interest, not for the greater interest of the community. They employed unqualified relatives. In many instances, sadly, they were also corrupt, and it made headlines.

BERMAN: So this was a turnaround. Really, it was a turnaround.

FRANKFORT: It was a turnaround.

BERMAN: Right. You’re coming in, you’re dealing with incompetence, you’re dealing with corruption, you’re dealing with bureaucracy. One of the challenges of these situations, unlike a smaller private company that’s a turnaround, is you don’t fully control it. You’ve got to deal with a lot of people, a lot of systems, a lot of laws, a lot of regulations. How did you attack the problem?

FRANKFORT: The first thing I did was look to recruit a coalition of leaders who felt purpose, who had values similar to mine. I wanted to maximize the number of children who would be able to stay in care with quality service. So I brought in what would be called a rainbow group of staff. We worked 24/7, and we got the programs to a place where no eligible child was denied service, where we were able to manage to a lower budget and improve the quality of care. Ultimately, HEW, which had identified us as the worst program in the United States, complimented us and said other programs should follow our example. Ed Koch was mayor at the time, and he passed me over for a job that I felt particularly qualified for. When I met with him, he said to me, “Lew, you’re too principled.” And I knew exactly what he meant.

BERMAN: What did he mean?

FRANKFORT: Three years earlier, when he was a congressman in Manhattan, he came to my office — the only congressperson who came to my office — to ask me to save a program outside of his district. He did not want to know why they were being defunded and expected that, based on our meeting, I would just save this program. I knew he was coming. It was the one call I got from City Hall where they said, “You must meet with Congressman Koch. He’s very influential.” They gave me a heads-up on the program, and I said, “I’ll meet with him.” But based on measurable standards and metrics, it was in the bottom 10 percent of all programs. Only 15 percent of children were eligible. Out of every 100, 15 had income low enough. The other 85 either didn’t provide standards or had higher income. The mayor said this to me when he was a congressman, and I said, “Congressman, I’m not sure there’s anything I can do.” And he said, “You know what I want.” I said, “I understand.” And, of course, I went on to defund the program.

Copy LinkHow Lew Frankfort went from city government to Coach

BERMAN: So basically, he came around a few years later as mayor and said, “You’re not my guy.” After that run-in with Mayor Ed Koch, Lew knew it was time to move on from city government. Luckily for him, it was pre-Uber, and he shared a cab with exactly the right friend one dark night.

FRANKFORT: He said, “Well, I have a friend from childhood who has a small pocketbook company called Coach. It’s $6 million in sales. He’s 60 years old, and he’s looking for a protege. His children aren’t going into the business, and he’s looking for someone who has two qualifications,” which I asked about. He said, “One, they have no fashion experience.” That was me. “And the second was good values.” And I said, “Well, I got good values, I think.” Four interviews later, I gave notice and joined Coach.

BERMAN: What did you join Coach as? What was your role coming in?

FRANKFORT: Effectively as an assistant to the CEO, I got the title VP for marketing and special projects.

BERMAN: Titles are free.

FRANKFORT: Titles are free.

FRANKFORT: What I did in considering Coach was a deep search into what Coach was. I went to the end user, and what I learned in my interviewing process — where I pretended to be a Businessweek reporter and spoke to the buyer from Bloomingdale’s, someone from Bonwit, someone from Macy’s, and went into a handbag store on 72nd Street — was that Coach had a cult following, and people loved Coach.

Copy LinkWhy Lew Frankfort pretended to be a reporter to research the brand

BERMAN: You were pretending to be a reporter because you were worried they wouldn’t tell you the truth if they knew you were actually from Coach?

FRANKFORT: If I identified myself as a reporter from Businessweek, I would have access to most people — divisional managers, GMs, maybe even presidents. So everyone took my call, and I asked for meetings and said I was writing an article about this small private company, Coach.

BERMAN: So what did you learn?

FRANKFORT: I learned that women are particularly loyal to bags because it’s a very personal object. It’s a vessel. They open it 50 or 60 times a day. In the case of Coach, we had a beautiful — and still do — natural leather that develops a patina over time like a baseball mitt. So over time, it would never wear out, it would wear in. The bags were sturdy and well made, durable, and I thought they were a great value. People loved their Coach.

BERMAN: Take us on the journey from this tour as a posing Businessweek reporter and the insights you’re getting to how you deploy those insights against the business to begin to grow it.

FRANKFORT: The first notion I had was that we had a loyal consumer base. I then went to look for models outside the United States where handbag manufacturers were also selling directly. In Europe, there was a very well-established luxury group of brands led by Louis Vuitton. It was a relatively small brand, and I admired them because they controlled their destiny. They sold only in their own stores at one price, controlled the merchandising, the staffing, the service levels, all the policies. When I looked at Louis Vuitton as a luxury brand, I thought to myself that Coach could one day become a democratized luxury brand. Rather than being accessible to the top 1 or 5 percent of the population, we could be broadly accessible to the top 20 to 40 percent of the population because we offered a product that was unique, had a lot of grit, and was very much American natural leather. We coined the term 20 years later: accessible luxury.

Copy LinkSpotting the opening for accessible luxury

BERMAN: I feel like this concept of accessible luxury wasn’t even really in the marketplace at the time.

FRANKFORT: No. In my mind’s eye, I saw a growing audience of a rapidly growing middle-class population.

BERMAN: With the benefit of hindsight, when you look back on it, Lew, what was the inflection point?

FRANKFORT: The magical moment occurred in 1981. I was only at Coach 24 months, and I convinced the founder’s wife to allow me to open a Coach store on Madison Avenue. The first Christmas, we opened in October of 1981. It was 450 square feet — so narrow, 11 feet wide, 40 feet deep. It cost us $50,000 to fixture the store. We needed to do $300,000 to basically break even. That Christmas, we had lines out the door to the corner, and we did over a million dollars in year one. I knew that there was something special.

BERMAN: Why did you have lines out the door? What happened?

FRANKFORT: I had started a catalog business 18 months earlier, and it was clear based on my early marketing — speaking with consumers, visiting with consumers, looking in their closets at what bags they carried, how many bags they had in their closet, what role Coach played, what would encourage them to buy a second bag — that if we were able to put our entire assortment in one place and have seasoned salespeople in our store, it would work. The aroma of natural leather permeated the space. People walked into a bespoke environment. There was nothing cookie-cutter. Miles and I designed the store ourselves, and it was uniquely Coach. By that time, through our mail-order business, we had a file of about 100,000 people, and we invited 20,000 of them to the store. They lived within 100 miles. We had special events, and they came because they believed in and loved Coach.

BERMAN: I feel like this is such an important point to drill down on, because you didn’t just say, “We think we have a brand. We think we have a story to tell. We’ve got a theory of the case in terms of Madison Avenue and accessible luxury, so we’ll open it and hope it works.” You had already built the engine.

FRANKFORT: I had real clarity it would be successful. I never dreamed from the start it would be as successful as it was. We ultimately did $10,000 a square foot in that space.

BERMAN: Which is a crazy number.

FRANKFORT: Insane. Even today.

Copy LinkBuilding a retail engine before scaling aggressively

BERMAN: That’s a Tiffany number. That’s a ridiculous number. So you launched the Madison Avenue store. It’s doing a million dollars in a business that was only doing $6 million top line two years earlier. What’s the next step in the evolution of Coach?

FRANKFORT: By the spring of 1984, we were at $20 million, and the channels that I started were about 50 percent of the business. The founder, Miles, decided, “I’m going to sell the business, Lew, rather than make you and the others my partner. And if you stay through the transaction, I’m going to recommend that you become CEO because I’m going to leave the day of the sale. But I want you to know, Lew, between us, you’re not ready for this.” And I said, “I understand, Miles.” There were several groups interested, and I was able to negotiate the best price from the group that I thought would be best for the future of Coach, which was a big conglomerate called Sara Lee.

BERMAN: What did Sara Lee do right, both in acquiring Coach and integrating Coach into Sara Lee? And what did it get wrong?

FRANKFORT: They got everything right at the beginning. First was building a team. They were really focused on making sure that I had the right people in the right places.

BERMAN: What did they get wrong?

FRANKFORT: Along the way, they unsuccessfully tried to use the power of Coach to help get brands into locations where they wanted to open shops. I remember once they came to me when JCPenney was still a very strong mass brand, eating department stores’ lunches. JCPenney wanted to bring Coach in, and our customers candidly weren’t shopping there, at least not yet. They weren’t. At the same time, Sara Lee wanted to open Hanes and Champion shops in JCPenney, and they said, “If you get Coach to come in, we’ll open the shops.” So they came to me to push me to do that, and I, of course, declined. I was prepared to have them terminate me rather than do things that made no sense. Summarizing many discussions over time, there was a handshake between me and the CEO-chairman of Sara Lee that if I could get them a billion dollars, they would give us our freedom.

BERMAN: Not bad, given when they bought you, you were hoping to get to $25 million in revenue.

FRANKFORT: They paid $30 million.

BERMAN: OK. It’s a pretty good return on investment.

FRANKFORT: Not bad.

BERMAN: Still ahead, how Lew Frankfort blended magic and logic to scale Coach to new heights.

[AD BREAK]

Welcome back to Masters of Scale. You can find this conversation and much more on our YouTube channel, and be sure to check out the show notes to find a link to our newsletter.

Copy LinkPreparing Coach to break out beyond its corporate parent

So how did you get it to a point where you could spin it out of Sara Lee?

FRANKFORT: First, I recruited the right business leaders. Second, we aligned as a team on what we needed to do to prepare to go public. Third, we went about doing it in a very systematic way. By the time 1999 rolled around, it was clear to me through the green shoots that we had measured that we were on the cusp of a breakout. I wanted to get out as quickly as I could before the numbers grew so that the benefit would accrue to the Coach shareholders, not the Sara Lee shareholders.

BERMAN: Right. There’s a sweet spot.

FRANKFORT: In the spring of 2000, we agreed that we were going to go public. We engaged with Goldman Sachs, and even though the market went through a dip in the middle of the year and there was some discussion of pulling the IPO, I was able to deliver numbers that gave Goldman confidence they could take us public successfully, which we did.

BERMAN: One of the interesting things about the timing is that as the dot-com bubble is bursting, you are very much not a dot-com stock.

FRANKFORT: The other thing was we needed to develop storytelling that would make sense, and we coined the term accessible luxury. The business grew very, very rapidly. We revamped our entire supply chain. We broadened the personality of Coach. We introduced major new collections that had very broad appeal in Asia. In Japan, they spent at the time six times as much as the average American spent on bags.

BERMAN: Wow.

FRANKFORT: The reason Japan had an egg-shaped economy, particularly back then, was that everyone was middle class and the number one possession was a European luxury brand. I didn’t go in to target the European luxury brands. I went after the young female professional who was looking to be emancipated, not get married right away, but travel, be independent, break the glass ceiling. I was able to offer her a bag at 40,000 yen while the European competitors were 100,000 yen, and she could save that 60,000 yen and go to Korea for a weekend — hotel and airfare.

Copy LinkBlending magic and logic to lead with vision and discipline

BERMAN: I want to focus on some of the leadership lessons from your career. One of the things that strikes me is that you have a lot of companies right now that will tell you they’re data-driven. At our company, one of the things we talk about is being data-informed, not data-driven, because data can’t be everything.

FRANKFORT: Of course.

BERMAN: You say “of course,” but there are a lot of people out there who’ll tell you, look at the numbers and act on the numbers. Help us understand how you’ve approached integrating data and logic and traditional left-brain thinking with vision and creativity and imagination, more traditional right-brain thinking.

FRANKFORT: I coined the term magic and logic, and it’s language we continue to use at Coach. My successors use it today, and it’s embedded in our culture. Magic is having belief, having vision, seeing something that doesn’t exist, and having the curiosity to probe and learn. Another aspect of magic is being adaptable and nimble. And lastly, it’s also using instinct and intuition. On the logic side, one of the hardest things from a culture perspective, in my mind, is to build a greater-good mindset where you bring people together toward a purpose. They’re in service of something. We built a culture with everyone in mind that we wanted to build a powerful franchise. We wanted consumers to love us, to believe in us. At its essence, that’s what great brands do. People believe in them.

BERMAN: So many companies work in silos. They build things that are literally called divisions rather than figuring out the integration.

FRANKFORT: The reality is that larger companies don’t have the right people with the right mindsets. You need an entrepreneurial mindset. You can’t just create a new projects division within a company. The reality is that most of the people in these large companies — perhaps not the CEO or the No. 2, but often yes — have grown up in the company or grown up in the industry. So they are used to a certain way of working. They want to meet their plan. They want to get their bonus. They want to go on vacation when they want to go on vacation. They won’t speak truth to power because they don’t want to jeopardize their jobs, and they may not want to work 24/7.

So many companies, whether it’s American Express 30 years ago under Ken Chenault or Disney, have to be reinvented. You’ve got to throw it up in the air. It’s not a surprise to either of us: when you talk about a founder, sometimes the second generation builds it and the third generation ruins it. And while they may not ruin it in very large companies, when you have scale and you have process and you have protocols, it’s very tough to move things.

Copy LinkHow Coach has stayed relevant

BERMAN: Lew, Coach is having a real moment with Gen Z right now. It feels like every couple of weeks I see some news where Coach is breaking through, where it’s popping on TikTok. What is it like not being in the business day to day, but being so inextricably tied with Coach and seeing what’s happening with the brand right now?

FRANKFORT: It’s very rewarding for me, particularly because I know the leadership team and I know their values. The two people who lead Coach, Todd Kahn, the CEO, and Stuart Vevers, both of whom I recruited, are not only very good people, they feel they’re stewards of the brand. They feel they are temporarily in charge of the brand and that it belongs to the investors. It belongs to the employees. It belongs to the community that uses it. As stewards of the brand, they have really leaned into the zeitgeist and are very forward-minded. For me, seeing Coach reach all-time highs — we’re in our ninth decade now — is incredibly gratifying. Under my watch, we peaked at $20 billion in market cap, and it took 10 years after I left to get back to 20 and surpass us. So I can honestly say that Coach is truly a legacy brand. It lives in the hearts and minds of consumers and can withstand the ups and downs of time. It will be here in the next century.

BERMAN: It feels like the companion to magic and logic is tradition and innovation. There’s a real legacy there and also no fear of trying new things.

FRANKFORT: Yeah, and understanding your DNA. I’m wildly proud of the team and love the product that’s coming out. Since my retirement, I’ve not been as engaged as I have been since Todd became CEO six years ago.

BERMAN: I’m also struck, Lew, by the extent to which your principles run through your career, both in terms of decisions you make about where to go work and what to do and how to approach the work. Ed Koch passes you over for a job that you’re passionate about doing in your public service because you’re too principled. Sara Lee asks you to do things that you just don’t think are right, and you don’t do them. What’s the advice you’re giving to people who are coming up in their careers about when to toe the company line and do what they’re asking you to do and when to stick to your guns?

FRANKFORT: It depends on where you are on your journey and where you are on Maslow’s hierarchy. If you’re in a place where you are fortunate enough to have discretion, I encourage people to be mindful of where they are working and where they’re looking to work. I encourage people to look for organizations, whether it’s service or a product, where you believe in the purpose. Second, look for a culture that is affirmative and that encourages curiosity and openness, something that is not heavily siloed or hierarchical, where you are able to see people rising quickly if they perform. Look for a boss who you believe can be a mentor. It doesn’t mean in all areas, but someone you can learn from and who has reasonably high emotional intelligence. Because if you don’t, you could get into a situation where you don’t respect your boss. Do your best to find something that has purpose, where you can be authentic. That’s so important. And while you may not find your best destiny in that first role, there’s a much better likelihood that you will feel fulfillment and be able to grow and thrive.

BERMAN: The book is Bag Man. It is a riveting and rollicking tale. I encourage everyone to pick it up. Lew, thank you so much for being on Masters of Scale.

FRANKFORT: It’s been a joy.